The High Cost of Market Economy Label It has fascinated Vietnam watchers, particularly those from the West, to discover the metamorphosis of the country transforming itself from a closed political system into an aspiring market economy.

It has fascinated Vietnam watchers, particularly those from the West, to discover the metamorphosis of the country transforming itself from a closed political system into an aspiring market economy.

Mixing role models from all over the globe and opening rapidly to catch up with globalisation, Vietnam has attracted foreign direct investment that grows larger and larger each year and kept conservative economists bewildered.

A European-style welfare state, market socialism of China’s Deng Xiaoping , social stability and affluence delivered by Singapore’s Lee Kwan Yew through dominating People's Action Party have probably given great inspiration to Vietnam's single-party government that sets its sight on presiding over a modern industrial nation in the next decade.

The stresses of this ambitious drive to a market economy come at a price, though. As opportunities for a new entrepreneurial class continue to grow, the safety net for the poor is fraying. Farmers and townspeople have been displaced by hotels and factories built by foreign investors; organised labor - where it exists - is impotent; health care is spotty; and traffic and air pollution in major cities have reached critical mass.

Old inequalities persist as new ones develop despite the UNDP’s recognition that Vietnam being one of the rare countries in the world where poverty is receding.Similar to China, the largest non-market economy in the world, Vietnam faces a number of allegations and litigation.

India, for example, initiated a few anti-dumping investigations against Vietnamese products and applied duties on the import of some of these goods. In 2009, it imposed anti-dumping duties on three items – threads and fabrics, CD-R, and fluorescent lights – imported from Vietnam.

India, however, granted the market economy status to Vietnam in mid-2009 at the Asean Summit in Thailand, and cleared the way for Vietnam, which had refused to sign the Asean-India Free Trade Agreement, to finally put it signature to the document.

According to Vietnam’s Ministry of Industry, 26 countries, including Australia and New Zealand, have recognised Vietnam as a market economy since it joined the WTO in 2007.

However, the European Union and the United States, despite being the major investor and trade partners, have yet to see a good reason to follow suit. The EU has recently extended anti-dumping duties on leather-capped shoes from Vietnam, saying it is unsuitable with the growing economic and trade ties between Vietnam and the EU.

The European Commission - the legislative arm of the EU - is currently imposing an anti-dumping tariff rate of 10 percent on Vietnamese leather shoes.

The EU duty extensions, expected to come into force on Jan. 1, 2010 will apply to middle and high-end leather shoes–the major export staples of Vietnam’s leather and footwear industry that are currently offered at a more competitive price than those from other countries.

Meanwhile, the US imposition of anti-dumping duties on Vietnam’s frozen shrimp products since 2003 has made the number of exporters decrease.

Vietnam has now launched its first dispute at the World Trade Organization with a case against US anti-dumping measures on its key exports of shrimp.

The trade dispute with the United States not only has symbolic significance, given the two countries' war that ended 35 years ago, but defends a product that brought in some $1.5 billion in exports last year.

It also pits Hanoi against a large number of Vietnamese-American shrimpers who operate off the coasts of Texas, Louisiana, Mississippi, Alabama, Georgia and Florida.

Vietnamese shrimp exporters currently face U.S. anti-dumping duties ranging from zero to about 26 percent.

They have complained in the past about the controversial US method of calculating anti-dumping duties known as zeroing, which has been condemned repeatedly by

WTO courts and rejected by all other WTO members.

••••

When there is Opportunity, there is Challenge

For two decades, crisis has been the main catalyst for Vietnam to abandoning orthodox socialist policy. Unfavorable or severe economic shocks have helped the Vietnamese government produce comprehensive reforms.

In the past decade, the nation of 86 million people has averaged 7.3 percent economic growth, boosted its per-capita income past $1,000, opened two stock markets, and joined the World Trade Organization.

Latest GDP figures for 2009 demonstrate Vietnam’s resilience amid a global recession. Its top leaders, buoyed by 5.32 percent in growth recorded last year, are aiming for an increase of 6.5-7 percent in 2010.

Prime Minister Nguyen Tan Dung said the global downturn was an opportunity to make drastic changes rather than a challenge during a dialogue with more than twenty presidents and executives of the world’s leading finance and banking, real estate, energy, civil engineering, telecom and health groups in Davos, Switzerland, on the sidelines of the World Economic Forum late January.

That opportunity did not come without a challenge, though. Perhaps, Mr. Dung might recall the struggle to get his country’s economy out of trouble. Amidst the rising inflation and widening trade deficit, Dung blamed the global turmoil for the economic woes at home in a closed door meeting with the country’s ‘independent’ think tanks in September 2008. (Vietnam In Denial Over Economic Woes, by Long S. Le, Far Eastern Economic Review, October 2008)

The meeting raised fundamental questions about the issues underlying the troubled economy, including inadequate measures to ensure stable growth, the lack of good governance, and the shortage of unskilled workers.

Intent on boosting growth to 7 percent, the prime minister resorted to what was known as a “flexible way” to fight inflation. But economists and analysts were not convinced, saying it would be very difficult if not impossible to keep inflation under control and at the same time driving up growth.

The policy bias soon moved to growth, with the government unveiling a stimulus package worth about $8 billion to boost an economy that expanded 3.14 percent in the first quarter of 2009, the slowest pace on record. Measures included subsidies to encourage banks to offer loans, a program due to be scaled back in 2010.

Last September, President Nguyen Minh Triet said that the government was focusing more on growth than on inflation. However, since late 2009, the policy focus has reversed to controlling inflation over further boosting an economic growth rate that is already accelerating.

So is the inflation rate, which is expected to reach 14.2 percent by the third quarter of 2010 and that the economy would expand 6.8 percent for the full year, according to analysts.

••••

VIETNAM, ASEAN AND EAST ASIA

From Vision To ActionAddressing
a special session on East Asia in Davos, Switzerland, on January 30,
Prime Minister Nguyen Tan Dung has called for a greater effort to build
an East Asian Community to promote economic cooperation, maintain peace
and stability and raise its voice in the international arena.

This
is no longer a ‘dream and long-term vision”, said Dung, noting that
regional cooperation and integration towards the goal of building an
East Asian community has been boosted through mechanisms initiated by
Asean since 1997.

“In
this process, economic cooperation and integration takes the lead,
serving as a catalyst and an important material prerequisite for
building the community,” he said.Economic
and trade integration between regional countries has deepened following
the signing of a number of bilateral and multilateral free trade area
(FTA) agreements. Consequently, a plan to establish an East Asia Free
Trade Area (EAFTA) within the ASEAN+3 framework and the Comprehensive
Economic Partnership for East Asia (CEPEA) is in the pipeline.

If
realised, EAFTA will be the world’s largest free trade area with more
than 2 billion consumers and a total GDP reaching $10,000 billion. East
Asia will become an inter-connected region with Asean taking centre
stage Asean in the next 30-50 years, according to Dung.

Asean
is devising a blueprint to connect all roads, railway lines, sea and
air routes, and telecom infrastructure within the grouping and
expanding to East Asia.East Asian cooperation and integration has
currently been carried out through Asean+3 and East Asia mechanisms, in
which Asean+3 is considered the main tool with

Asean forming the core, supported by the Asean+1, Asean Regional Forum and East Asian summits.(Asean+3
consists of Asean, China, Japan, and the Republic of Korea while
Asean+6 is made up of China, Japan, the Republic of Korea, India,
Australia and New Zealand.)

With
Korea hosting the G-20 summit this year, there is a good chance for
East Asia to elevate its status globally while Asean can look forward
to gaining more opportunities to leverage itself in future G-20 summits.

Dung,
meanwhile, has proposed an East Asian Forum on Climate Change to draw
up a joint action programme and contribute to setting up a global
cooperation framework to deal with this big challenge.